Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

The Best Dividend ETFs Aren’t Dividend ETFs At All

Tue, Sep 27, 10:14 AM ET, by Michael Johnston

As the ETF industry has expanded rapidly in recent years, the universe of asset classes and investment strategies accessible through the exchange-traded wrapper has increased dramatically. In addition to funds offering exposure to natural resources and volatility–two asset classes previously beyond the reach of many investors–a number of products have popped up that seek to deliver opportunities to tap into intriguing investment methodologies in a cost efficient and time efficient manner.

One area of tremendous interest focuses on dividends; there are literally dozens of ETFs that are designed to concentrate exposure on dividend-paying stocks, from those linked to dividend-weighted methodologies to those with stringent consistency requirements for inclusion. Popular equity funds in the space include DOD, IDV, and HDV; while products with international flavor like PID, DWX, and EDIV can help investors expand the geographic scope of their portfolio’s holdings.

Dividend-focused ETFs may be appealing to a number of different types of investors. For those seeking relatively low risk equity exposure, dividend-focused strategies allow for a dialing back of risk while still keeping a toe in the water. For those seeking to beef up current returns with bond yields at all time lows, some of the yields paid out might be rather attractive.

For investors seeking broad-based stock exposure tilted towards companies with the highest dividend yields, funds such as VIG and DTD might be good fits [see Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields]. But for those looking to max out current yield, there are a number of other exchange-traded products without “dividend” in the name that are capable of delivering much more handsome returns:

MLP ETFs (And ETNs)

The Master Limited Partnership (MLP) sector has been seeing a surge in popularity thanks to the robust growth of the ETF industry, which has allowed for cost-efficient exposure to this unique corner of the domestic energy market. MLPs generate fee-based revenues as they own and operate energy infrastructure assets such as natural gas storage tanks and crude oil pipelines [see Do You Need An MLP ETF?].

MLPs have taken on appeal largely thanks to their favorable tax treatment, allowing for investors to rake in a hefty current income. By generating at least 90% of income from natural resource-based activities (such as transportation and storage), an entity can qualify as an MLP and not be taxed as a corporation. In other words, shareholders of MLPs are treated as partners by the IRS, allowing for investors to avoid double taxation of earnings.

There are several offerings in the MLPs ETFdb Category, and with this asset class in particular, the choice of product structure is very important as the tax nuances between ETFs and ETNs can be significant [see MLP Exposure: ETF or ETN]. Below we have briefly highlighted two of the products available to investors:

  • ALPS Alerian MLP ETF (AMLP): This fairly new ETF has been quite popular as it has amassed more than $1.3 billion in assets since its launch in the latter half of 2010. AMLP tracks the Alerian MLP Infrastructure Index, and its underlying portfolio is comprised of 25 components, with two-thirds of all assets going to the top ten holdings alone. The top three MLPs represented in the fund include Enterprise Products Partners, Kinder Morgan Energy Partners, and Magellan Midstream Partners. AMLP recently had an annual dividend yield of 6.4%.
  • JPMorgan Alerian MLP Index ETN (AMJ): This ETN is the largest products offering investors access to the energy MLP sector. The ETN structure gives it a potential leg-up over comparable ETFs in the space since shareholders of AMJ are faced with less administrative burdens by avoiding an annual K-1 tax form [see MLP ETFs: Fact And Fiction]. AMJ recently had an annual dividend yield of 5.3%.

BDC ETNs

Business Development Companies (BDCs) are generally involved in lending money to small and mid-sized companies, often times resembling private equity firms. Similar to MLPs, these entities are eligible for some advantageous tax treatments when certain portions of earnings are paid out. BDCs pay almost no corporate taxes as long as they pay out at least 90% of their profit and capital gains as taxable dividends. BDCs can also earn exemption from the 4% nondeductible federal excise tax if they distribute at least 98% of ordinary income each calendar year.

This asset class boasts a juicy yield and is particularly appealing since it offers exposure to private companies that are simply not accessible to most investors. Achieving exposure to this asset class through an ETN may have some unique tax consequences as the coupon payments from BDCS will be treated as ordinary income for tax purposes [see Tax Advantages Of ETNs]. There are currently two products available offering exposure to BDCs:

  • UBS E-TRACS Wells Fargo Business Development Company Index (BDCS): This ETN holds a portfolio of 26 BDCs, although it effectively offers exposure to more than 1,000 privately held companies through the broad-based portfolios of the component companies. Also as mentioned previously, investors have no direct way of accessing this asset class since the companies are not publicly-traded. BDCL provides investors with 2x monthly leveraged exposure to the same index as BDCS, which recently had an annual yield in the neighborhood of 7.5%.

Mortgage REIT ETFs

Mortgage REITs are often overlooked by many given then ongoing anxiety over the health of the U.S. housing market. Although quite risky, this asset class is very capable of generating impressive returns for investors looking to beef up the current income portion of their portfolios [see How To Find The Right Dividend ETF]. Mortgage REITs are different from traditional equity REITs; instead of owning and operating physical real estate, mortgage REITs issue mortgages or acquire loans and other mortgage-backed securities. It isn't uncommon for mortgage REITs to leverage up to seven or eight times their capital, allowing for significant distribution yields. Some interesting offerings include:

  • iShares FTSE NAREIT Mortgage REITs Index Fund (REM): This ETF is linked to an index that measures the performance of the residential and commercial real estate, mortgage finance, and savings associations sectors of the U.S. equity market. REM holds a shallow basket of 50 securities, with the top ten components accounting for over two-thirds of the entire portfolio. This fund does a very nice job of rounding out exposure to small and mid cap size mortgage REITs, and it recently had an annual yield of about 10.6%.
  • Van Eck Market Vector Mortgage REIT Income ETF (MORT): This new fund tracks the Market Vectors Global Mortgage REITs Index, and requires that the constituent companies derive at least 50 percent of their revenues from mortgage REITs. MORT holds a portfolio of about 25 different REITs, with the largest allocations going to Annaly Capital Management (about 20%) and American Capital Agency Corp (12%).

Disclosure: No positions at time of writing.


SDI Glossary: "Dividend" Definition
SDI Glossary: "Equity" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "Mortgage REIT" Definition
SDI Glossary: "Yield" Definition
This Article's Word Cloud:   BDCS   BDCs   Dividend   ETFs   ETNs   Index   MLPs   Mortgage   Partners   REITs   This   about   allowing   annual   asset   assets   based   class   companies   current   different   dividend   energy   equity   exposure   from   have   holds   income   investors   least   market   mortgage   natural   number   other   over   portfolio   products   recently   since   that   their   this   those   time   very   with   yield   yields

| More

FXZ Makes Notable Cross Below Critical Moving Average
Tue, Sep 23, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the First Trust Materials AlphaDEX Fund ETF (FXZ) crossed ...

RWO Crosses Below Key Moving Average Level
Tue, Sep 23, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR Dow Jones Global Real Estate ETF (RWO) ...

Daily Developed Markets Bear 3x Shares (DPK) Shares Cross Above 200 DMA
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the Daily Developed Markets Bear 3x Shares ETF (DPK) ...

First Trust China AlphaDEX Fund (FCA) Shares Cross Below 200 DMA
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the First Trust China AlphaDEX Fund ETF (FCA) crossed ...

FGD Crosses Critical Technical Indicator
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the First Trust Dow Jones Global Select Dividend Index ...

KCE Crosses Below Key Moving Average Level
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P Capital Markets ETF (KCE) crossed below ...

BRAF Crowded With Sellers
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the Brazil Financials ETF (BRAF) entered into oversold territory, ...

DBU Makes Notable Cross Below Critical Moving Average
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the WisdomTree Global ex-US Utilities Fund ETF (DBU) crossed ...

SRTY Makes Bullish Cross Above Critical Moving Average
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the Proshares UltraPro Short Russell2000 ETF (SRTY) crossed above ...

EFU Crosses Above Key Moving Average Level
Tue, Sep 23, 3:54 PM ET, by ETF Channel

In trading on Tuesday, shares of the Proshares UltraShort MSCI EAFE ETF (EFU) crossed above ...

Invesco Moves Up In Analyst Rankings, Passing ACE
Tue, Sep 23, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

See How American Express Ranks Among Analysts' Top Dow 30 Picks
Tue, Sep 23, 12:14 PM ET, by ETF Channel

A study of analyst recommendations at the major brokerages shows that American Express Co. (AXP) ...

EZU: ETF Outflow Alert
Tue, Sep 23, 11:54 AM ET, by ETF Channel

Symbols mentioned in this story: EZU Exchange traded funds (ETFs) trade just like stocks, but ...

CIU: Large Inflows Detected at ETF
Tue, Sep 23, 11:54 AM ET, by ETF Channel

Symbols mentioned in this story: CIU Exchange traded funds (ETFs) trade just like stocks, but ...

IWF, IBM, VZ, GILD: Large Inflows Detected at ETF
Tue, Sep 23, 11:44 AM ET, by ETF Channel

Symbols mentioned in this story: IWF, IBM, VZ, GILD Exchange traded funds (ETFs) trade just ...

iShares Core U.S. Aggregate Bond ETF Experiences Big Inflow
Tue, Sep 23, 11:44 AM ET, by ETF Channel

Symbols mentioned in this story: AGG Exchange traded funds (ETFs) trade just like stocks, but ...

SSO, MMM, ABT, ABBV: ETF Inflow Alert
Tue, Sep 23, 11:44 AM ET, by ETF Channel

Symbols mentioned in this story: SSO, MMM, ABT, ABBV Exchange traded funds (ETFs) trade just ...

EFZ Makes Bullish Cross Above Critical Moving Average
Tue, Sep 23, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the Proshares Short MSCI EAFE ETF (EFZ) crossed above ...

ENY Crosses Below Key Moving Average Level
Tue, Sep 23, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the Guggenheim Canadian Energy Income ETF (ENY) crossed below ...

EFAV Makes Notable Cross Below Critical Moving Average
Tue, Sep 23, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the iShares MSCI EAFE Minimum Volatility ETF (EFAV) crossed ...

SPDR S&P Bank (KBE) Shares Cross Below 200 DMA
Tue, Sep 23, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P Bank ETF (KBE) crossed below their ...

WisdomTree Korea Hedged Equity Fund (DXKW) Enters Oversold Territory
Tue, Sep 23, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the WisdomTree Korea Hedged Equity Fund ETF (DXKW) entered ...

14.0% of FDL Holdings Seeing Recent Insider Buys
Tue, Sep 23, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the First Trust Morningstar Dividend Leaders Index ...

Why T Rowe Price Group is a Top 25 SAFE Dividend Stock (TROW)
Tue, Sep 23, 8:14 AM ET, by ETF Channel

T Rowe Price Group Inc. (TROW) has been named to the Dividend Channel ''S.A.F.E. ...

GDXJ Crosses Critical Technical Indicator
Mon, Sep 22, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the Junior Gold Miners ETF (GDXJ) entered into oversold ...

Shares of EWY Now Oversold
Mon, Sep 22, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the iShares MSCI South Korea Capped ETF (EWY) entered ...

PALL Crowded With Sellers
Mon, Sep 22, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the ETFS Physical Palladium Shares ETF (PALL) entered into ...

ERX Makes Notable Cross Below Critical Moving Average
Mon, Sep 22, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the Daily Energy Bull 3x Shares ETF (ERX) crossed ...

HGI Crosses Below Key Moving Average Level
Mon, Sep 22, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the Guggenheim International Multi-Asset Income ETF (HGI) crossed below ...

PowerShares DWA Energy Momentum Portfolio (PXI) Shares Cross Below 200 DMA
Mon, Sep 22, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the PowerShares DWA Energy Momentum Portfolio ETF (PXI) crossed ...

SEA Makes Notable Cross Below Critical Moving Average
Mon, Sep 22, 11:34 AM ET, by ETF Channel

In trading on Monday, shares of the Guggenheim Shipping ETF (SEA) crossed below their 200 ...

XME, X, AKS, STLD: ETF Outflow Alert
Mon, Sep 22, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: XME, X, AKS, STLD Exchange traded funds (ETFs) trade just ...

GXC, BIDU, CTRP, NTES: Large Inflows Detected at ETF
Mon, Sep 22, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: GXC, BIDU, CTRP, NTES Exchange traded funds (ETFs) trade just ...

EWW: Large Outflows Detected at ETF
Mon, Sep 22, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: EWW Exchange traded funds (ETFs) trade just like stocks, but ...

SH: Large Inflows Detected at ETF
Mon, Sep 22, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: SH Exchange traded funds (ETFs) trade just like stocks, but ...

SPDR Dow Jones Global Real Estate ETF Experiences Big Inflow
Mon, Sep 22, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: RWO, BAM.A.CA, VTR, BXP Exchange traded funds (ETFs) trade just ...

XLF, BAC, C, AXP: Large Inflows Detected at ETF
Mon, Sep 22, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: XLF, BAC, C, AXP Exchange traded funds (ETFs) trade just ...

Oil Services Breaks Below 200-Day Moving Average - Notable for OIH
Mon, Sep 22, 11:14 AM ET, by ETF Channel

In trading on Monday, shares of the Oil Services ETF (OIH) crossed below their 200 ...

IXC Makes Notable Cross Below Critical Moving Average
Mon, Sep 22, 11:14 AM ET, by ETF Channel

In trading on Monday, shares of the iShares Global Energy ETF (IXC) crossed below their ...

EWY Makes Notable Cross Below Critical Moving Average
Mon, Sep 22, 11:14 AM ET, by ETF Channel

In trading on Monday, shares of the iShares MSCI South Korea Capped ETF (EWY) crossed ...

WisdomTree Global Equity Income Fund Breaks Below 200-Day Moving Average - Notable for DEW
Mon, Sep 22, 11:14 AM ET, by ETF Channel

In trading on Monday, shares of the WisdomTree Global Equity Income Fund ETF (DEW) crossed ...

PAF Crosses Below Key Moving Average Level
Mon, Sep 22, 11:14 AM ET, by ETF Channel

In trading on Monday, shares of the PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio ETF ...

IRV Crosses Critical Technical Indicator
Fri, Sep 19, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the SPDR S&P International Materials Sector ETF (IRV) entered ...

TUR Makes Notable Cross Below Critical Moving Average
Fri, Sep 19, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the iShares MSCI Turkey ETF (TUR) crossed below their ...

AGZ Crosses Below Key Moving Average Level
Fri, Sep 19, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the iShares Agency Bond ETF (AGZ) crossed below their ...

RYE Crosses Below Key Moving Average Level
Fri, Sep 19, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) ...

RWX Makes Notable Cross Below Critical Moving Average
Fri, Sep 19, 4:14 PM ET, by ETF Channel

In trading on Friday, shares of the SPDR Dow Jones International Real Estate ETF (RWX) ...

General Growth Properties Takes Over #37 Spot From Union Pacific
Fri, Sep 19, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

SPDR S&P Emerging Markets Dividend (EDIV) Shares Cross Below 200 DMA
Fri, Sep 19, 11:14 AM ET, by ETF Channel

In trading on Friday, shares of the SPDR S&P Emerging Markets Dividend ETF (EDIV) crossed ...

Vanguard REIT ETF Experiences Big Outflow
Fri, Sep 19, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VNQ, PSA, PLD, AVB Exchange traded funds (ETFs) trade just ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

The Best Dividend ETFs Aren’t Dividend ETFs At All | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.